Introduction to Management Case Study SEM 1 2021: HappyPizza

This case study is fictional and has been partly built using facts from real companies.

HappyPizza is a Vietnamese pizza chain with a network of franchises and over 50 retail stores nationally.
It has been hailed as a success story since its launch in 2009. In just over a decade, HappyPizza shares
have surged more than 2500 per cent, making it one of the best performers on the market and making a
lot of people wealthy. In 2019 the company generated total revenue of VND 202,747,000,000.

Background of HappyPizza

HappyPizza has the world's biggest pizza menu with more than 2,000 options, helping boost HappyPizza
sales to more than 1 million pizzas annually with a guarantee to Deliver pizza within 25 or 30 minutes.
HappyPizza business model is based on franchisees growing sales, not profit, with head office taking a
royalty from every sale as Vietnamese chomp through 20 thousand of its pizzas every week. Stores are
bought and sold on a multiple of these sales, not on profit. The more stores in the network, means more
sales are generated, which results in more profits for head office.

HappyPizza selects its franchisees carefully, those who genuinely believe HappyPizza is a highly
profitable business. However, when the store is not profitable franchisees are held to blame for bad
business management. The stress of making ends meet took its toll on many franchisees who realised
the business they had bought into was not viable, due to the company policies, especially on labour
costs and a perception that the head office was only concerned about the welfare of people at the
corporate level. Whilst HappyPizza profit is doubling the cost of pizzas is getting cheaper due to high
competition in the fast-food sector. However, this cheap cost of pizza is borne by the franchisees who
are struggling to make a decent profit due to them not being able to pass on the increasing high costs of
running the stores.

Understanding the CEO

HappyPizza CEO Mrs Nguyen believes the only way a business can deal with challenges is to work out
ways of turning a negative into a positive. For example, legislation on employee conditions has forced up
HappyPizza labour costs 50% over the next four or five years. “But that means people are getting better
paid, which means the company is holding on to its employees for longer”, she says. The result: delivery
times have reduced from 32 to minutes to 24. Also, there are fewer mistakes in store and staff members
are more engaged.
Mrs. Nguyen uses encouragement and training programs to engage and motivate staff. “We incentivise
people through a range of systems to become better pizza makers, better dough makers, to become
more skilled delivery drivers. There are training classes and we time you and you go through tests and
you get different badges on your shirt and so on.” HappyPizza staff respond to her nurturing leadership
with loyalty. As a reward every year Mrs. Nguyen takes her top team to the Silicon Valley in the USA to
view new technologies that could be introduced into the HappyPizza business.

Worker unhappiness

The reality of life inside HappyPizza is not what is portrayed to the general public. Many workers are
unhappy due to widespread underpayment of wages and not always paying staff their full entitlements
was found to be standard practice across many stores. Hardworking staff made few tips and often
suffered abuse and danger while delivering food to strangers. Affected workers were reluctant to speak
out for fear of retribution.

It took HappyPizza store manager Mr Long three years to get the courage to inform head office that his
boss Mr Thap, who was also one of its biggest most powerful franchisees and a member of HappyPizza
influential Franchisee Advisory Committee, was exploiting workers. Mr Thap ran 10 stores on the Ho Chi
Minh City area. Mr Long remembers working long hours without a break in suffocating heat, with no air
conditioning working close to a 200-degree oven. "I had to bring in a fan because it was so hot.” "I was
so stressed all the time," he says. Mr Long said he worked between 50 hours and 60 hours a week but
that his pay slips often showed he worked 40 hours as anything above 43 hours would attract penalties.
This had the effect of denying him overtime payments for extra hours he worked. "I was told the money
would be made up when we get a good day, but that didn't happen. I was very nervous and afraid
working in the stores. If the sales weren't good I would be shouted at," he says. "Once I was told I 'would
be put in the oven' he was so mad," he said.

Franchisees

After claims of unlawful conduct by franchisees were made to head office, HappyPizza audited its stores
and terminated four franchisees for wage fraud. The audit uncovered "a strong likelihood of unlawful
and fraudulent behaviour, driven by greed", including manipulation of worker shift hours by the
franchisee, breach of payroll conditions and practices, not paying overtime, not paying the correct
hourly rate. HappyPizza said it has "zero tolerance" for worker exploitation and will take action against
anyone caught deliberately underpaying workers.

Why were some franchisees acting like this? As competition intensified with other rival food chains, a
number of franchisees describe the head office system as "dictatorial" with its ongoing demands to
make record profits. Franchisees reported being very stressed losing hundreds of millions of Vietnam
Dong. They weren't making money unless they were cutting costs. Franchisees were being asked to pay
more and more ongoing fees, sell 100.000vnd pizzas and make them in increasingly record times - all of
which put pressure on staff and franchisees.

Mr Long reported Mr Thap to head office shortly after he quit his job in April 2020. The long hours, poor
pay, and heat exhaustion finally got to him. He never heard back from HappyPizza and never received
back pay.

ITM concepts covered in class this case relates to: Stakeholder theory/Power/Ethics/Organizational
culture from topic 1 to 5 You must follow the marking rubrics structure when writing your case study
analysis